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Monday, January 14, 2013

Somin: Tax Rates and Political Ignorance

The Volokh Conspiracy:  Tax Rates and Political Ignorance, by Ilya Somin (George Mason):

Many polls show that large majorities of the public want to raise tax rates on people earning over $250,000 per year. But in an interesting recent post on the Democrats’ approach to tax policy, Megan McArdle cites an interesting 2012 poll of likely voters conducted for The Hill, which shows that the vast majority of Americans prefer rates that are much lower than those that existed even before the the recent fiscal cliff deal. ... Support for relatively low tax rates was not limited to Republicans or high-income earners. Indeed, low tax rates for the wealthy got their highest level of support from relatively low-income survey respondents, and their lowest level from the wealthy themselves. ...

Why is it that large majorities simultaneously support increasing income taxes on people earning over $250,000 per year, but also believe that they should be taxed at a lower rate than existed even before the recent fiscal cliff deal raised it for individuals earning over $400,000, and families earning over $450,000? As The Hill points out, the most likely explanation is political ignorance. Most people probably don’t know what tax rates are currently in force, especially for people in income classes other than their own. ... If most of the public is indeed ignorant on this point, it would be consistent with extensive political ignorance on a wide range of other issues, including fiscal policy and the federal budget. ...

To be clear, I am not suggesting that raising tax rates above 30% is a bad idea merely because the vast majority of the public opposes it. Most of the public has little understanding of the relevant arguments and data. Their views are only a weak indicator at best of the desirability of particular tax rates. But the data do suggest that ignorance of current tax rates may be a strong influence on the distribution of public opinion on tax issues. And public opinion, in turn, has an influence on policy, even if it’s not the only factor affecting it.

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Or maybe respondents do know that the top marginal rate on ordinary income is not the rate that wealthy Americans pay, since rates are progressive and cap gains and dividends receive preferential treatment.

Posted by: Anonymous | Jan 14, 2013 8:44:51 AM

While little or nothing can be done about the ignorance of the great unwashed, perhaps something can be done about the ignorance of their elected representatives.

Might it be possible for state law to require that any candidate for the US Congress or the US Senate certify that he or she has personally prepared his or her own tax return without professional or electronic assistance for at least the two tax years immediately prior to the year in which he or she runs for office?

Posted by: John | Jan 15, 2013 12:36:14 AM

Most people are extremely uninformed. Look at all the people, including pundits, who thought that the reason not to go over the fiscal cliff was because it would have expanded the deficit, when it actually was the opposite.
Ask people what to cut from the budget, they say foreign aid. Ask them how much foreign aid is, they say, oh, about 20-25 percent, when it's actually more like less than 1 percent.

Posted by: johnqpublic | Jan 15, 2013 1:56:40 AM

Of course most people do not know what anybody's federal marginal rate is, even their own - because they don't have a federal marginal rate. When close to 50% of the population has no federal tax liability, marginal rates are of no interest to them. Heck, they can't even plan their withholding so that they don't wind up with a refund each year.

Our elected officials are not ignorant - they know what they are doing. And when 50% pay no federal tax, why should they bother knowing anything about it? They have no skin in the game and can vote into office those who promise over and over again to give them something than somebody else had to pay for.

If everyone had some federal tax liability, then more people would have incentive to vote down tax increases. People pay attention to what government costs when they have some stake in paying for it.

Simple human nature.


Posted by: TioMoco | Feb 26, 2013 3:50:13 AM